DOCTRINES

STATE INVESTMENT HOUSE INC. v. CA

217SCRA 32

That the post-dated checks were merely issued as security is not a ground for the discharge of the
instrument as against a holder in due course. For, the only grounds are those outlined in Sec. 119 of the
Negotiable Instruments Law.

The intentional cancellation contemplated under paragraph C, Sec. 119 is that cancellation effected by
destroying the instrument either by tearing it up, burning it, or writing the word cancelled on the
instrument.

BATAAN CIGAR AND CIGARETTE FACTORY INC. v. CA

230 SCRA 643

A check is crossed specially when the name of a particular banker or a company is written between the
parallel lines drawn. It is crossed generally when only the words and company are written or nothing
is written at all between the parallel lines. It may be issued so that presentment can be made only by a
bank.

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a
check should have the following effects: (a) the check may not be encashed but only deposited in the
bank; (b) the check may be negotiated only onceto one who has an account with a bank; (c) and the
act of crossing the check serves as warning to the holder that the check has been issued for a definite
purpose so that he must inquire if he has received the check pursuant to that purpose, otherwise, he is
not a holder in due course.

CITYTRUST BANKING CORP. v. IAC

232 SCRA 559

The bank is engaged in business impressed with public interest and it is its duty to protect in return its
many clients and depositors who transact business with it.

Bank clients are supposed to rely on the services extended by the bank including the assurance that
their deposits will be duly credited them as soon as they are made.

TAN v. COURT OF APPEALS

239 SCRA 310

A bank cannot exculpate itself from liability for the consequences of the use of wrong deposit slip
resulting in the misrouting of a regional check to the Central Bank for clearing.

An ordinary check is not a mere undertaking to pay an amount of money. There is an element of
certainty or assurance that it will be paid upon presentation that is why it is perceived as a convenient
substitute for currency in commercial and financial transactions.

A cashiers check is a primary obligation of the issuing bank and accepted in advance by its mere
issuance, and, by its peculiar character and general use in the commercial world is regarded
substantially to be as good as the money which it represents.

PAPA v. A.U. VALENCIA & CO., INC.

284 SCRA 643

After more than ten (10) years from the payment in part by cash and in part by check, the presumption
is that the check had been encashed.

Failure of a payee to encash a check for more than ten (10) years undoubtedly resulted in the
impairment of the check through his unreasonable and unexplained delay.
ENGR. CAYANAN v. NORTH STAR INT'L TRAVEL, INC.
G.R. No. 172954, 05 October 2011

We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed
that the same was issued for valuable consideration which may consist either in some right, interest,
profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under
the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for
a consideration or for value.

SALAZAR v. J.Y. BROTHERS MARKETING CORPORATION

G.R. No. 171998, 20 October 2010

Among the different types of checks issued by a drawer is a crossed check. The Negotiable Instruments
Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such
instruments. We have taken judicial cognizance of the practice that a check with two parallel lines in
the upper left hand corner means that it could only be deposited and could not be converted into
cash. Thus, the effect of crossing a check relates to the mode of payment, meaning that the drawer had
intended the check for deposit only by the rightful person, i.e., the payee named therein. The change in
the mode of paying the obligation was not a change in any of the objects or principal condition of the
contract for novation to take place.

STATE INVESTMENT HOUSE INC. v. CA

217SCRA32

FACTS: Corazon Victoriano provided pieces of jewelry to Nora Moulic so that the latter may sell the
same. As security for the jewelries, Moulic issued to Victoriano two post-dated checks in the aggregate
amount of P100,000.00. Moulic was not able to sell the jewelries so she returned the same to Victori-
ano. Victoriano was however unable to return the checks hence Moulic withdrew all her funds from the
bank.

Apparently, the checks were negotiated by Victoriano to State Investment House, Inc. So when the
checks were dishonored, State Investment demanded Moulic to pay. Moulic refused to pay because she
said the checks were merely used as security for the jewelry. Moulic further averred that she received
no notice of dishonor.

ISSUE: Whether or not State Investment House is entitled to be paid.

HELD: Yes. State Investment is a holder in due course as it met all the requirements to be one pursu-
ant to Section 52 of the Negotiable Instruments Law. In particular, it is clearly shown that: (a) on their
faces the post-dated checks were complete and regular: (b) State Investment bought these checks from
Victoriano, before their due dates; (c) State Investment took these checks in good faith and for value,
(d) State Investment was never informed nor made aware that these checks were merely issued to Vic-
toriano as security and not for value.

Further, there is no need to issue a notice of dishonor to Moulic. After Moulic withdrew her funds, she
could not have expected her checks to be honored. It would only be futile for State Investment to be
sending her notices of dishonor for the two checks.
 BATAAN CIGAR AND CIGARETTE FACTORY INC. v. CA
230SCRA643

Facts: Petitioner, Bataan Cigar & Cigarette Factory, Inc. (BCCFI), a corporation involved in the
manufacturing of cigarettes, engaged one of its suppliers, King Tim Pua George (herein after referred
to as George King), to deliver 2,000bales of tobacco leaf starting October 1978. In
consideration thereof, BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March
1979 in the total amount of P820,000.00. Petitioner agreed to purchase additional 2,500 bales
of tobacco leaves, despite the supplier's failure to deliver in accordance with their earlier agreement.
Again petitioner issued post dated crossed checks in the total amount of P1,100,000.00, payable
sometime in September 1979.During these times, George King sold at a discount the checks drawn by
petitioner to private respondent SIHI. In as much as George King failed to deliver the bales of tobacco
leaf as agreed despite petitioner's demand, BCCFI issued on March 30,1979, a stop payment order on
all checks payable to George King. Efforts of SIHI to collect from BCCFI having failed, it instituted
the present case, naming only BCCFI as party defendant. The trial court pronounced SIHI as having a
validclaim being a holder in due course.

Issue: Whether or not SIHI, a second indorser, a holder of crossed checks, is a holder in due course, to
be able to collect from the drawer, BCCFI.

Held: YES. As preliminary, a check is defined by law as a bill of exchange drawn on a bank payable
on demand. There are a variety of checks, the more popular of which are the memorandum check,
cashier's check, traveler's check and crossed check. Crossed check is one where two parallel lines are
drawn across its face or across a corner thereof. It may be crossed generally or specially. According to
commentators, the negotiability of a check is not affected by its being crossed, whether specially or
generally. It may legally be negotiated from one person to another as long as the one who encashes the
check with the drawee bank is another bank, or if it is specially crossed, by the bank mentioned
between the parallel lines. In order to preserve the credit worthiness of checks, jurisprudence has
pronounced that crossing of a check should have the following effects: (a) the check may not be
encashed but only deposited in the bank; (b) the check may be negotiated only once to one who has an
account with a bank; (c) and the act of crossing the check serves as warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received the check pursuant to
that purpose, otherwise, he is not a holder in due course. It is then settled that crossing of checks should
put the holder on inquiry and upon him devolves the duty to ascertain the indorser's title to the check or
the nature of his possession. There being failure of consideration, SIHI is not a holder in due course.
Consequently, BCCFI cannot be obliged to pay the checks.

CITYTRUST BANKING CORP. v. IAC

232SCRA559

Facts: Emme Herrero, businesswoman, made regular deposits with Citytrust Banking Corp. at its Bur-
goa branch in Calamba, Laguna. She deposited the amount of P31, 500 in order to amply cover 6 post-
dated checks she issued. All checks were dishonored due to insufficiency of funds upon the present-
ment for encashment. Citytrust banking Corp. asserted that it was due to Herreros fault that her checks
were dishonored, for he inaccurately wrote his account number in the deposit slip. RTC dismissed the
complaint for lack of merit. CA reversed the decision of RTC.

Issue: Whether or not Citytrust banking Corp. has the duty to honor checks issued by Emme Herrero
despite the failure to accurately stating the account number resulting to insufficiency of funds for the
check.

Held: Yes, even it is true that there was error on the account number stated in the deposit slip, its is,
however, indicated the name of Emme Herrero. This is controlling in determining in whose account
the deposit is made or should be posted. This is so because it is not likely to commit an error in ones
name than merely relying on numbers which are difficult to remember. Numbers are for the conven-
ience of the bank but was never intended to disregard the real name of its depositors. The bank is en-
gaged in business impressed with public trust, and it is its duty to protect in return its clients and depos-
itors who transact business with it.
It should not be a matter of the bank alone receiving deposits, lending out money and collecting inter-
ests. It is also its obligation to see to it that all funds invested with it are properly accounted for and du-
ly posted in its ledgers.

TAN v. COURT OF APPEALS

239SCRA 310

Facts: Ramon Tan, a businessman from Puerto Princesa, secured a Cashiers Check from Philippine
Commercial Industrial Bank (PCIBank) to P30,000 payable to his order to avoid carrying cash while
enroute to Manila. He deposited the check in his account in Rizal Commercial Banking
Corporation(RCBC) in its Binondo Branch. RCBC sent the check for clearing to the Central Bank
which was returned for having been missent or misrouted. RCBC debited Tans account without
informing him. Relying on common knowledge that a cashiers check was as good as cash, and a
month after depositing the check, he issued two personal checks in the name of Go Lak and MS
Development Trading Corporation. Both checks bounced due to insufficiency of funds. Tan filed a
suit for damages against RCBC.

Issue: Whether a cashiers check is as good as cash, so as to have funded the two checks subsequently
drawn.

Held: An ordinary check is not a mere undertaking to pay an amount of money. There is an element
of certainty or assurance that it will be paid upon presentation; that is why it is perceived as a
convenient substitute for currency in commercial and financial transactions. Herein, what is involved is
more than an ordinary check, but a cashiers check. A cashiers check is a primary obligation of the
issuing bank and accepted in advance by its mere issuance. By its very nature, a cashiers check is a
banks order to pay what is drawn upon itself, committing in effect its total resources, integrity and
honor beyond the check. Herein, PCIB by issuing the check created an unconditional credit in favor
any collecting bank. Reliance on the laymans perception that a cashiers check is as good as cash is not
entirely misplaced, as it is rooted in practice, tradition and principle.

PAPA v. A.U. VALENCIA & CO., INC.

284SCRA643

FACTS: Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion
of said estate to Felix Pearroyo through A.U. Valencia and Co., Inc. Pearroyo gave Papa
P5,000.00 plus a check worth P40,000.00. However, Papa was not able to deliver the certificate
of title to Pearroyo. A litigation ensued and ten years after, Papa argued that the sale between
him and Pearroyo was never consummated because he did not encash the P40,000.00 check
and that the P5,000.00 cash was merely earnest money.

ISSUE: Whether or not Papa is correct.

HELD: No. After more than ten (10) years from the payment in part by cash and in part by check,
the presumption is that the check had been encashed. Granting that Papa had never encashed
the check, his failure to do so for more than ten (10) years undoubtedly resulted in the impairment
of the check through his unreasonable and unexplained delay. While it is true that the delivery of
a check produces the effect of payment only when it is cashed, pursuant to Article 1249 of the
Civil Code, the rule is otherwise if the debtor (Pearroyo) is prejudiced by the creditors (Papas)
unreasonable delay in presentment. The acceptance of a check implies an undertaking of due dil-
igence in presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for which it
was given.
 ENGR. CAYANAN v. NORTH STAR INT'L TRAVEL, INC.
G.R. No. 172954, 05 October 2011

Facts: On March 17, 1994, Virginia Balagtas, the General Manager of North Star, in accommodation
and upon the instruction of Cayanan, sent the amount of US$60,000 to View Sea Ventures Ltd., in
Nigeria from her personal account in Citibank Makati. On March 29, 1994, Virginia again sent
US$40,000 to View Sea Ventures by telegraphic transfer, with US$15,000 coming from petitioner.
North Star extended credit to petitioner for the airplane tickets of his clients, with the total amount of
such indebtedness under the credit extensions eventually reaching P510,035.47.
To cover payment of the foregoing obligations, petitioner issued the following five checks to North Star:
1. Check No: 246822 -- Drawn Against : Republic Planters Bank Amount: 695K Dat-
ed/Postdated: May 15, 1994 --- Payable to: North Star
2. Check No: 246823 -- Drawn Against: Republic Planters Bank Amount: 278K Dat-
ed/Postdated: May 15, 1994 --- Payable to: North Star
3. Check No: 246824 -- Drawn Against: Republic Planters Bank --- Amount: 22,703.00
Dated/Postdated: May 15, 1994 Payable to North Star
4. Check No: 687803 Drawn Against: PCIBAmount: 1.5M Dated/Postdated: April 14,
1994 Payable to North Star
5. Check No: 687804 Drawn Against: PCIB --- Amount: 35K Dated/Postdated: April 14,
1994 --- Payable to: North Star

Upon presentment: Checks amounting to 1.5M and 35K bounced for insufficiency of funds. The other
3 checks were dishonored due to a stop order payment from Cayanan.
North Star, through its counsel, wrote to Cayanan informing him of the dishonor. North Star demanded
payment but Cayanan failed to comply with its obligation. Hence the filing of Information for Criminal
Case for violation of BP22 in MeTC of Makati.
Petitioner pleaded NOT GUILTY. But the MeTC rendered judgment finding Cayanan guilty beyond
reasonable doubt. (1 year of imprisonment plus 2,530,703.00 for the amounts of checks, 400,078.02 for
interest deducting 220,000 which was already paid).

Issue: WON CA erred in making him civilly liable and WON the instrument was for value
Held: CA decision affirmed.
We have held that upon issuance of a check, in the absence of evidence to the contrary, it is presumed
that the same was issued for valuable consideration which may consist either in some right, interest,
profit or benefit accruing to the party who makes the contract, or some forbearance, detriment, loss or
some responsibility, to act, or labor, or service given, suffered or undertaken by the other side. Under
the Negotiable Instruments Law, it is presumed that every party to an instrument acquires the same for
a consideration or for value. As petitioner alleged that there was no consideration for the issuance of
the subject checks, it devolved upon him to present convincing evidence to overthrow the presumption
and prove that the checks were in fact issued without valuable consideration. Sadly, however, petitioner
has not presented any credible evidence to rebut the presumption, as well as North Stars assertion, that
the checks were issued as payment for the US$85,000 petitioner owed.
Petitioner claims that North Star did not give any valuable consideration for the checks since
the US$85,000 was taken from the personal dollar account of Virginia and not the corporate funds of
North Star. The contention, however, deserves scant consideration. The subject checks, bearing
petitioners signature, speak for themselves. The fact that petitioner himself specifically named North
Star as the payee of the checks is an admission of his liability to North Star and not to Virginia Balagtas,
who as manager merely facilitated the transfer of funds. Indeed, it is highly inconceivable that an
experienced businessman like petitioner would issue various checks in sizeable amounts to a payee if
these are without consideration.
 SALAZAR v. J.Y. BROTHERS MARKETING CORPORATION
G.R. No. 171998, 20 October 2010

Facts: J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of sell-
ing sugar, rice and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent,
was approached by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the
positive, Salazar accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos
procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As payment, Salazar negotiated and
indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jau-
cian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that
assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check
was dishonored due to closed account. Informed of the dishonor of the check, Calleja, Kallos and Sala-
zar delivered to J.Y. Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29,
1996 again issued by Nena Jaucian Timario in the amount of P214,000.00 but which, just the same,
bounced due to insufficient funds. When despite the demand letter dated February 27, 1997, Salazar
failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with the crime of
estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.

Issue: Whether or not the issuance of the Solidbank crossed check discharged petitioner from liability.

Held: No. The obligation to pay a sum of money is not novated by an instrument that expressly recog-
nizes the old, changes only the terms of payment, adds other obligations not incompatible with the old
ones or the new contract merely supplements the old one.

Section 119 of the Negotiable Instrument Law provides, thus:

SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:

(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or accepted
for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right.

And, under Article 1231 of the Civil Code, obligations are extinguished:

xxxx
(6) By novation.

Petitioners claim that respondents acceptance of the Solid Bank check which replaced the dishonored
Prudential bank check resulted to novation which discharged the latter check is unmeritorious.

In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential
Bank check, did not result to novation as there was no express agreement to establish that petitioner
was already discharged from his liability to pay respondent the amount of P 214,000.00 as payment for
the 300 bags of rice. As we said, novation is never presumed, there must be an express intention to no-
vate. In fact, when the Solid Bank check was delivered to respondent, the same was also indorsed by
petitioner which shows petitioners recognition of the existing obligation to respondent to pay P
214,000.00 subject of the replaced Prudential Bank check.